CANADA FX DEBT-C$ firms, but weakness seen on horizon

By Alastair Sharp
TORONTO, Nov 6 (Reuters) - The Canadian dollar firmed
slightly against the U.S. dollar in subdued trade on Wednesday,
but is seen weakening in coming weeks and months as bond yields
likely slip back towards those of its southern neighbor and main
trading partner.
At 9:42 a.m. (1442 GMT) the Canadian dollar was
trading at C$1.0440 to the greenback, or 95.79 U.S. cents,
compared with C$1.0458, or 95.62 U.S. cents, at Tuesday's North
American close.
"Today there are a couple of Canadian data points that are
perhaps interesting to watch but probably not all that
influential for the Canadian dollar," said Greg Moore, currency
strategist at TD Securities.
Increased plans for housing construction helped edge the
value of Canadian building permits up by 1.7 percent in
September after permits were whipsawed by a gain and loss of
more than 20 percent in July and August.
Separately, the pace of purchasing activity in Canada jumped
in October, with supplier deliveries returning to growth,
according to Ivey Purchasing Managers Index data released on
Wednesday.
In a Reuters poll released on Wednesday, the currency was
seen slipping to C$1.06 a year from now as the combined effect
of tighter future U.S. monetary policy and no imminent rate
hikes in Canada take hold.
While much attention in coming weeks will be on whether the
U.S. Federal Reserve will start to trim back its monetary
stimulus, Moore said the Bank of Canada's recent dropping of a
rate-hike bias would likely cause weakness in the Canadian
currency as short-term bond yield spreads tighten.
"The Canadian yield advantage is on an eroding trend and
that should continue perhaps a little more sharply after the
messaging we heard in the past couple of weeks," he said.
The two-year bond was up 1.5 Canadian cents to
yield 1.123 percent, while the benchmark 10-year bond
rose 8 Canadian cents to yield 2.527 percent.